This study presents an alginate-collagen interpenetrating network (IPN) matrix of incorporating collagen fibrils into an alginate hydrogel by physical mixing and controlled gelation. The resulting matrix closely mimics the physiological and pathological stiffness range of the chondrocyte pericellular matrix (PCM). Chondrocytes were cultured within three-dimensional (3D) alginate-collagen IPN matrices with varying stiffness, namely Firm, Medium, and Soft. Alginate lyase was introduced to study the effects of the changes in stiffness of the Firm on chondrocyte response by in situ softening. The developed alginate-collagen IPN matrix displayed good cell-biocompatibility. Compared with stiffer tissue culture plastic (TCP), chondrocytes grown within Firm displayed a stabilized differentiated phenotype characterized by higher expression levels of aggrecan, collagen II, and SOX-9. Moreover, the developed alginate-collagen IPN matrix exhibited a gradually increased percentage of propidium iodide (PI)-positive dead cells with decreasing stiffness. Softer matrices directed cells towards higher proliferation rates and spherical morphologies while stimulating chondrocyte cluster formation. Furthermore, reducing Firm stiffness by in situ softening decreased aggrecan expression, contributing to matrix degradation similar to that seen in osteoarthritis (OA). Hence, the 3D alginate-collagen IPN constructs hold significant potential for in vitro replicating PCM stiffness changes observed in OA cartilage.